Mumbai Financial District Turns North

By

Nupur Acharya

Updated Dec. 4, 2012 6:02 p.m. ET

MUMBAI—India's financial capital is built on a peninsula that narrows sharply at its southern tip, a geography not dissimilar to Manhattan. And like some New York banks that have left Wall Street for Midtown, Mumbai's financial elite are heading north.

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A building stands under construction next to Standard Chartered offices in BKC.
Bloomberg News

Many of the city's largest financial institutions and companies are giving up on the chaotic south of the city—home to crumbling buildings from the British Raj and to drab 1960s tower blocks—and moving to an area known as the Bandra Kurla Complex, or BKC.

Global banks such as Citigroup Inc.,C-0.71%Standard CharteredSTAN-0.29% PLC and UBS AG are among companies that have bought or rented offices in gleaming buildings in BKC in the past few years. They followed Indian banks, companies and the country's largest stock exchange, which already had set up there.

The U.S. Consulate and international schools have moved to the area. There is an open area used for concerts and trade fairs. A large complex including a drive-in cinema and shopping mall is under construction. Future plans involve building more residential complexes of high-end houses and apartments on empty lots that scatter the site. Las Vegas hotels the Bellagio and MGM Grand, MGM Resorts International,MGM-0.15% are planning to open hotels in the area within a few years.

The complex boasts broad sidewalks and roads, and street-side vendors are barred, a contrast to Nariman Point, the city's traditional business district in the south that until a few years ago was home to some of the world's priciest real estate.

BKC isn't without problems. Like much of Mumbai, vacancy rates in offices are running at 20% as India's slowing economic growth has led to an oversupply. The areas outside the complex, including Dharavi, one of Asia's largest slums, remain extremely poor. Lack of adequate public transportation and food outlets is a drawback, workers say. At night, it can seem like a ghost town.

But many real-estate agents and business people say BKC rental prices, which have tripled in the past decade as other Mumbai rents have slipped, are set to continue to climb as the area offers the best opportunity to build a new financial district.

"I feel the center of Mumbai has moved out of south Mumbai," said Uday Kotak, managing director of Kotak Mahindra Bank. "The center will be Bandra Kurla."

Mumbai city planners knew from the 1970s that they were running out of space at Nariman Point. The area overlooking the Arabian Sea still has near-constant traffic, as cars and hawkers dragging carts compete for space. Companies in the area often have to make do with offices in decrepit buildings, without adequate parking.

The Mumbai Metropolitan Regional Development Authority developed BKC on an uninhabited marshy area bounded by a polluted creek, not far from the city's international airport. It drained the area, and some Indian government departments became early tenants.

It wasn't until more than a decade later that BKC began to take shape, as India's market-opening measures of 1991 pumped the economy. The development authority began auctioning land to private developers, which looked to attract Indian companies and financial institutions.

But a decade ago, BKC still was largely empty and rents in Nariman Point continued to soar as Indian and foreign companies sought to expand. At its peak in year 2008, rentals at Nariman Point for top-quality office blocks touched 475 rupees a square foot per month, the equivalent of almost $900,000 for a 100,000-square-foot office space.

This price escalation spurred interest in BKC, where rentals a decade ago were about a quarter of the rent at Nariman Point.

Today, rents in BKC and Nariman Point are both around 280 rupees a square foot per month. In BKC, a 100,000-square-foot office will rent for about $545,000 a month. That makes it more expensive than business districts in Taipei, Seoul and Sydney, and comparable to Perth and Singapore, according to Jones Lang LaSalle,JLL0.99% a real-estate services firm.

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The Signature Island apartment building is under construction in BKC.
Bloomberg News

Some realtors say city planners will have to ensure BKC gets more high-quality residences and shops for the area to continue attracting people.

"The authorities will have to plan for the future," said Ramesh Nair, managing director for west India at Jones Lang LaSalle.

Still, there is no sign the area's growth is slowing. In part, that is because of few alternatives. Efforts to build a new business district out of an area of former textile mills in Lower Parel, between Nariman Point and BKC, have stalled largely because of congestion problems in the area.

"BKC is a planned development unlike the central Mumbai area where infrastructure is a problem," said Samantak Das, a Mumbai-based director of research for Knight Frank.

Citigroup, one of the first foreign banks to move to BKC from Nariman Point, paid $187.23 million earlier this year to buy an additional 297,000 square feet of space. The bank, like many other companies, still maintains a representative office in south Mumbai.

Currently, BKC has a total of eight million square feet of office space. An additional 2.5 million square feet should be available by the end of this year with the planned completion of three new office complexes. Citigroup and Deutsche Bank AGDB0.78% are anchor tenants in two of the new developments.

"The rentals are likely to go up further in 2013-2014 as there is likely to be a lag before the next supply comes in around 2015," Mr. Nair said.

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